1. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
An Ever Larger Union
Enlargement of the EU Single Market
A2 Economics: Global and European Context Issues (Geoff Riley, February 2011)
The Map of Europe
The EU is now the
largest integrated
economic area in
the world,
accounting for
more than 30% of
world GDP and
more than 17% of
world trade
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2. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Expanding the Single Market
• First Expansion
– 1973: UK, Ireland and Denmark
• Mediterranean Spirit
– 1981: Greece
– 1986: Portugal and Spain
• Entry of the Neutrals
– 1995: Austria, Finland and Sweden
• The Big Bang
– 2004: Latvia, Lithuania, Cyprus, Malta, Slovenia,
Slovakia, Estonia, Hungary, Czech Republic, Poland
– 2007: Bulgaria and Romania
Backward agrarian sectors?
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3. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Or countries and cities of deep cultural
and political interest
Many new EU countries offer surprises
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4. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
And lead the way towards a low
carbon economy
Benefits of EU Membership
Trade and Investment
• Free trade access to richer EU markets
• Attract inward capital investment
EU funding
• Structural funds for transport & environment
• Farm support (but at lower rate than ‘Old EU’)
Macroeconomic stability
• Commitment towards joining single currency
• Must be fully‐fledged market economies to join
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5. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
How have “New Europe” nations
performed since EU entry ?
• There are many indicators we can look at:
1. Volume /balance of trade within the EU
2. Economic growth rates and cyclical volatility
3. Relative productivity levels
4. Relative per capita incomes
5. Unemployment rates
6. Consumer price inflation
7. External trade and investment balances
Slovakian Exports to the UK
2.5
Dining at the Rich Man’s Table
Exports of goods and services, annual value Euro billions
2.5
2.0 2.0
1.5 1.5
EUR (billions)
billions
1.0 1.0
0.5 0.5
0.0 0.0
99 00 01 02 03 04 05 06 07 08 09
Source: EuroStat
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6. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Exports of goods and services as a share of GDP
140
Exports as a share of GDP
Per cent
140
130 130
120 120
110 110
100 100
90 90
80 80
%
70 70
60 60
50 50
40 40
30 30
20 20
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
United Kingdom Slovenia Poland
Slovak Republic Czech Republic
Source: Reuters EcoWin
Trade Balance in Goods and Services
10
Trade Balance as share of GDP
Balance of Trade as a share of GDP
10
5 5
0 0
-5 -5
-10 -10
%
-15 -15
-20 -20
-25 -25
-30 -30
00 01 02 03 04 05 06 07 08 09
Slovak Republic Czech Republic Estonia United Kingdom
Source: Reuters EcoWin
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7. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Comparing Economic Growth Rates
7
Out‐Pacing the UK on Growth
Constant Prices, Gross domestic product at market prices, 2000=100, Index
7
6 6
5 5
4 4
3 3
2 2
Percent
1 1
0 0
-1 -1
-2 -2
-3 -3
-4 -4
-5 -5
04 05 06 07 08 09 10 11 12
Poland [c.o.p 1 year] Czech Republic [c.o.p 1 year] United Kingdom [c.o.p 1 year]
Source: EuroStat
Volatile Economic Cycles for the Baltic States
15
Baltic States have been volatile
Annual % change in Real Gross Domestic Product
15
Latvia
10 10
Lithuania
Estonia
5 5
0 0
Percent
-5 -5
-10 -10
-15 -15
-20 -20
04 05 06 07 08 09 10
Estonia [ar 4 quarters] Latvia [ar 4 quarters]
Lithuania [ar 4 quarters]
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8. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Increased investment has supported growth
45.0
Investment ratios
Capital Investment at Constant Prices, measured as a % of GDP
45.0
40.0 40.0
35.0 35.0
30.0 30.0
%
25.0 25.0
20.0 20.0
15.0 15.0
00 01 02 03 04 05 06 07 08 09
Czech Republic Poland Bulgaria United Kingdom
Source: Reuters EcoWin
Fiat in Poland
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9. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
New Europe – a magnet for FDI
Growing
Low markets
Labour
Low land
Highly costs prices
literate
population Low
business
taxes
Central
Success
European
of early
Location
projects
Strong FDI
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10. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Transport Infrastructure - Total Length of Motorways
1000 Motorways 1000
900 900
800 800
700 700
KM
600 600
500 500
400 400
300 300
200 200
00 01 02 03 04 05 06 07 08 09
Poland Hungary Slovak Republic Slovenia
Source: EuroStat
Labour Productivity per Person Employed
90
Improvements in Productivity
Index of productivity as % of the EU27 average
90
80 Slovenia
80
70 70
Czech Republic
EU27=100
60 60
Hungary
50 50
Estonia
Poland
40 40
30 30
Romania
Bulgaria
20 20
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Czech Republic Poland Hungary
Estonia Romania
Slovenia Bulgaria
Source: Reuters EcoWin
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11. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Growth and Living Standards
Rising per
Faster Higher Increased
capita
growth productivity wages
incomes
Estimated Trend Economic Growth Rates
5.5
Estimated Trend Growth
Potential GDP, percentage change per year
5.5
5.0 5.0
4.5 4.5
4.0 4.0
3.5 3.5
Percent
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
04 05 06 07 08 09 10 11 12
Euro Zone Poland
Czech Republic United Kingdom
Source: OECD World Economic Outlook
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12. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Income convergence for ten new EU members
100
Relative Per Capita Incomes
Index of GDP per head, purchasing power standard, EU=100
100
90 90
80 80
70 70
EU25=100
60 60
50 50
40 40
30 30
20 20
00 01 02 03 04 05 06 07 08 09 10
Czech Republic Estonia Latvia
Hungary Slovak Republic Romania
Poland Bulgaria
Slovenia Lithuania
Source: Reuters EcoWin
Catching Up and Overtaking!
100
Catching up and taking over
GDP per Capita, purchasing power standard, EU25average = 100
100
95 95
90 90
85 85
80 80
EU25=100
75 75
70 70
65 65
60 60
55 55
50 50
00 01 02 03 04 05 06 07 08 09 10
Czech Republic Portugal Greece Slovenia
Source: EuroStat
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13. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Unemployment in selected New Member States
22.0
The Picture on Jobs
Percentage of the labour force, annual average, source: Eurostat
22.0
20.0 20.0
18.0 18.0
16.0 16.0
14.0 14.0
Percent
12.0 12.0
10.0 10.0
8.0 8.0
6.0 6.0
4.0 4.0
2.0 2.0
0.0 0.0
03 04 05 06 07 08 09 10
Poland Czech Republic Hungary Slovenia
Source: Reuters EcoWin
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14. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Unemployment Rates
22.0
Unemployment in the EU
Unemployment - % of labour force, seasonally adjusted
22.0
20.0 A third of the Euro Zone's 20.0
15.8 million unemployed
18.0 18.0
are in Spain
16.0 16.0
14.0 14.0
Percent
12.0 12.0
10.0 10.0
8.0 8.0
6.0 6.0
4.0 4.0
2.0 2.0
0.0 0.0
05 06 07 08 09 10
UK Spain Ireland
Germany Poland
Source: Reuters EcoWin
Inflation Rates for Selected new EU States
20.0
Inflation
Annual % change in consumer prices (all items)
20.0
15.0 15.0
10.0 10.0
Percent
5.0 5.0
0.0 0.0
-5.0 -5.0
04 05 06 07 08 09 10
Hungary Czech Republic Poland Latvia Euro Zone
Source: Reuters EcoWin
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15. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
EU Enlargement and the UK economy
Trade Labour
FDI Flows
Flows Migration
UK Exports to some new EU States
4.5
Trade
Exports of goods and services, annual data, current prices, £ billion
4.5
4.0 4.0
3.5 3.5
3.0 3.0
GBP (billions)
2.5 2.5
billions
2.0 2.0
1.5 1.5
1.0 1.0
0.5 0.5
0.0 0.0
00 01 02 03 04 05 06 07 08 09
Poland Hungary
Slovakia Czech Republic
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16. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
UK Trade in Goods and Services with Poland
6.0
UK Trade with Poland
Annual value of trade, £ billion
6.0
5.5 5.5
5.0 5.0
4.5 4.5
4.0 4.0
GBP (billions)
billions
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
00 01 02 03 04 05 06 07 08 09
Imports from Poland Exports to Poland
Source: Reuters EcoWin
UK Trade in Goods and Services with Poland
6.0
UK Trade with Poland
Annual value of trade, £ billion
6.0
5.5 5.5
5.0 Poland now takes 5.0
4.5 as many exports 4.5
4.0 from the UK as 4.0
GBP (billions)
billions
3.5 China does 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
00 01 02 03 04 05 06 07 08 09
Imports from Poland Exports to Poland
Source: Reuters EcoWin
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17. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Migration – Push and Pull Factors
Wages
Jobs Welfare
Language Travel
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18. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
The Migration Stats
Long Term Migration
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19. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Supporters of Inward Migration
• Fresh skills and boost to innovation
– Twenty‐two of Britain's 114 Nobel laureates were born abroad
– Tesco, Marks & Spencer, Easy Jet, Google, Yahoo!, eBay, YouTube
all founded or co‐founded by immigrants or their families
• Migration is a form of trade and there are gains from trade
– If you go to France for an operation, it is classified as trade; if a
French surgeon comes here, it is migration
– Reduces labour shortages
• Remittances add to GNP of new Europe
• Net contribution to government tax revenues
• Multiplier and accelerator effects
• May contribute to higher trend growth
• Justified on grounds of freedom, justice and human rights
Opponents of unrestricted migration
• Extra welfare burden
• Downward pressure on real wages and jobs
for domestic workers
• Social pressures and tensions
• Pressure on property prices and housing rents
• Some reports question the size of the
macroeconomic benefit of migration
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20. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Decisions on the Euro
• Entry into the EU involves a commitment to
join the single currency at some point
• But the timing is flexible
• 5 new EU states have joined since 2004
• Slovenia, Malta, Cyprus, Slovakia and Estonia
• Some have a pegged currency against the Euro
• Others favour a floating exchange rate
Pegging to the Euro - Estonia and Latvia
Some have pegged to the Euro
Local exchange rates to the Euro, daily value
15.660 15.660
15.650 15.650
EUR/EEK
15.640 15.640
15.630 15.630
15.620 15.620
Latvian currency
0.700 0.700
0.650 0.650
EUR/LVL
0.600 0.600
0.550 0.550
0.500 0.500
00 01 02 03 04 05 06 07 08 09 10 11
Source: Reuters EcoWin
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21. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Poland - Growth of Real GDP and the Exchange Rate
Top Pane: Real GDP Bottom Pane: Effective Exchange Rate Index
7
6
Poland – currency depreciation 7
6
5 5
Percent
4 4
3 3
2 2
1 1
0 0
130 130
125 125
120 120
115 115
Index
110 110
105 105
100 100
95 95
90 90
85 85
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
06 07 08 09 10
Poland, Real GDP, precentage change from previous period, Constant Prices
Effective Exchange Rate Index
Source: Reuters EcoWin
An ever wider Europe? Or risks of
enlargement fatigue?
• Iceland
• Croatia
• Macedonia and
Montenegro
• Bosnia and
Herzegovina
• Serbia
• Kosovo
• Turkey
• Ukraine, Georgia
or Tunisia?
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22. Geoff Riley (tutor2u) ‐ Europe an Ever Larger February 2011
Union
Enlargement – A Work in Progress
• Enlargement ‐ one of EU’s greatest successes
• New Europe was vulnerable to the global and
European financial crisis
• But many countries have outperformed old Europe
since 2007 on a variety of indicators
• They have provided fresh dynamism into the EU
• Europe needs it! Since 2005, Britain's economy has
grown by 2%, the Euro Zone's by 4%, Brazil's by 25%,
India's by 47% and China's by 69%
• The political significance of enlargement cannot be
underestimated
More
resources
on the EU
from the
Tutor2u
blog
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